Published: Sat, January 13, 2018
Sci-tech | By Carrie Guzman

Oil slips away from 2014 highs, though overall 2018 outlook remains firm

Oil slips away from 2014 highs, though overall 2018 outlook remains firm

A market surplus driven by US shale oil and a previous strategy by the Organization of Petroleum Exporting Countries to defend a market share with robust production levels meant there was plenty of room for risk.

"But market participants could also use the sharp drop in production as an excuse to buy", said Carsten Fritsch, oil analyst at Commerzbank AG in Frankfurt, Germany.

Oil prices rose on Monday, poised to make above $70 on a slight decline in the number of USA rigs drilling for new production and sustained OPEC output cuts. WTI Crude oil is now trading at $63.39 per barrel, down 0.64% on the day.

Brent for March settlement added 13 cents, or 0.2%, to $67.75 a barrel on the London-based ICE Futures Europe exchange.

Brent crude futures settled 6 cents higher at $69.26 a barrel, after hitting $70.05 a barrel during the session, its highest level since November 2014.

"The extension of the OPEC agreement and declining inventories are all helping to drive the price higher", said William O'Loughlin, investment analyst at Australia's Rivkin Securities.

OPEC and allies, including Russian Federation, are keeping supply limits in place in 2018, a second year of restraint, to reduce a price-denting glut of oil held in inventories. US production fell 290,000 barrels per day to 9.5 million bpd, the EIA said. Now the demand is ahead of production, we also have reached a market rebalancing. However, the Iraqi oil minister said Tuesday that oil exports should begin to flow from the country by the end of January.

The price of crude oil has risen from $68 to $70 per barrel in the global market as a result of rising demand, thus raising hope for the implementation of the nation's N8.6 trillion 2018 budget.

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Analysts are also predicting that United States crude inventories fell for an eighth week.

Worldwide, the EIA sees oil consumption rising by about 1.7 mb/d in both 2018 and 2019, led by stronger demand from China and India.

Most of the growth in USA output will come from the Permian basin, a huge shale region spanning western Texas and New Mexico.

Oil at $70 will be welcome relief for oil majors and nations such as Russian Federation and Saudi Arabia who rely on their oil revenues for the vast majority of their incomes. "Bottom line is, right now we're in the camp that prices are a bit overdone".

Oil prices continued to rise Tuesday as trader awaited the official data in USA crude stockpiles to be released Wednesday.

USA crude production fell in the most recent week by almost 300,000 barrels per day to about 9.5 million bpd, which analysts attributed to the deep freeze across most of the country.

Consumers will face gasoline and heating oil price increases this year despite a federal forecast for record-breaking domestic oil production.

"EIA estimates it costs roughly $0.50/Bbl more to transport WTI from the Asia than it costs to ship Brent from the North Sea to Asia", EIA/STEO reported.

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